MF distribution payouts slip to three-year low in FY20 amid market slump

Experts say nudge towards direct plans, regulatory changes and market correction have led to cuts

Mutual fund (MF) distributors have seen shrinking incomes with the gross amount paid by fund houses slipping to a three-year low of Rs 6,134 crore in 2019-2020 (FY20). The payouts were 22 per cent lower than previous year’s tally of Rs 7,938 crore.   

Market participants attribute this to a combination of factors. 

“Fund houses are looking to control costs by rationalising the commission-linked structures. As more fund houses get listed, the commissions could fall further, as MFs would look to further optimise their overall costs,” said Srikanth Matrubai, chief executive officer of Sri Kavi Wealth.

“There has been a nudge towards direct channels and value of assets have also seen an impact amid the market correction,” said Dhirendra Kumar, founder and chief executive officer of MF tracker Value Research.

Assets under direct plans accounted for 47 per cent of the overall industry assets as of May. Market regulator Securities and Exchange Board of India (Sebi) has also tried to encourage growth of direct plans in the past.

Through direct plans, investors can bypass a distributor and save on total expense ratios (TERs), as distribution commissions are embedded into the TERs.

Larger distributors have also seen cut in receipts. For Axis Bank, the gross amount payout is down to Rs 415 crore, which is 25 per cent lower than previous year. State Bank of India (SBI) has seen the payout fall by 23 per cent (Rs 374.9 crore). HDFC Bank has seen an impact of 40 per cent (Rs 294 crore), while ICICI Bank has seen a dip of 47 per cent (Rs 185.64 crore).     

NJ India Invest, the country’s largest distributor by commissions earned, saw a three per cent dip in payouts in FY20.

Market participants say that regulatory changes have also put constraints on MFs’ ability to incentivise distributors. “New regulations clearly state that all scheme-related expenses need to be borne by the concerned scheme,” Matrubai added.

Earlier, fund houses could bear the scheme-related expenses such as distribution costs onto their books, instead of booking it fully into the schemes.

Also, upfront payout of commission has been barred in the MF industry since October, 2018.

Slowdown in equity flows, which are higher yielding products, have also contributed to the dip. In FY20, equity schemes garnered Rs 83,787 crore of flows, 25 per cent lower than previous year’s tally of Rs 1.1 trillion.

Weakness in market sentiments has led to higher redemptions and value erosion, reducing the size of assets handled by the distributors.

In FY20, the BSE benchmark Sensex has corrected over 20 per cent, after seeing a strong rally in previous financial year.

Amid the Covid-19 pandemic and lockdown conditions, redemptions in MF schemes have got aggravated, but distributors are trying to hold investors by asking them to keep a long-term view. “In cases, where investors need to withdraw for emergency needs, we are suggesting them to consider loan against MF units if they feel markets are now likely to recover,” said an independent financial advisor.

On Monday, the 30-share Sensex closed 1.2 per cent higher on strong global cues, amid expectations of another round of fiscal stimulus to kickstart global economy. Since March 23 lows, the Sensex is up 40 per cent.

Feeling the pinch	MF distributors see shrinking commissions	Bigger players also saw deep cuts
Year	Payouts (Rs crore)	Distributor	Gross amount paid-FY20 (Rs crore)	Decline (YoY %)
FY16	3657	Axis Bank	415.8	-25
FY17	5000	SBI	374.9	-23
FY18	8549	HDFC Bank	294	-40.7
FY19	7938	ICICI Securities	278.35	-12.7
FY20	6134	ICICI Bank	185.64	-47
Source: Amfi